Maybe we should just buy an investment property and make a loss, so that we pay no tax at all...
NO!
Never enter any investment solely with the intention of generating a tax loss to claim against other income -
NEVER.
Once the Super tax came in, I was wheeled out repeatedly to 'educate' trustees whose mindset was "Super fund should aim to pay zero tax. Tax is evil."
I pointed out that it was easy to pay zero tax - give money to a fund manager who under performs and over a 5 year period, after fees etc the amount of tax their fund would pay would be minimal. Then I gave them an example of a real life fund I managed that I'd reworked its history to show it as a tax paying fund (before tax was payable) and added franking credits to the dividends stream etc.
Long story short -
you want to achieve the highest after tax return not the lowest tax paid.
So, do your homework.
If you think property prices (units) in Melbourne will rise by more than the mortgage rate over the next 5 years then you look for something to buy as an INVESTMENT not your future home. Say you buy a mythical $400k unit, after stamp duty etc maybe cost is $430k (rough guess). You get a VERY good idea before hand what it may rent out at, ideally you want double brick or concrete walls (less damage can be done by tenants). Find out its strata fees and whether there are any outstanding fees from other owners, also if one person owns a majority of the units (avoid like the plague IMHO).
If it was me I'd try to find a reasonable low-rise block of units (preferably 3 storey walk-up (=no lift maintenance), no pool (= no pool maintenance), close to good public transport, not built in the last 10-15 years (all defects will well and truly be on display). Get the idea - low strata fees. Also if good enough land size then potential future high-rise development.
Do the maths on rent - strata fees - RE agent property mgmt (negotiate them down) - possibly water rates (if not separate meters) - Council rates - mortgage interest cost - MORTGAGE CAPITAL REPAYMENTS.
The best is where the amount you can out down on the deposit is enough to reduce the mortgage so the property is positively geared (or close to). That way if any unforeseen emergency/job loss/pitter patter etc happens you are not possibly forced to sell.
Create a simple excel spreadsheet that calculates the interest and shows you instantly what benefits you get (reduced payoff and time to payoff) for every additional amount you put in the mortgage offset account (not in the mortgage itself - provides flexibility for eventual house purchase).
So if you think property prices will continue to rise on avg over next 5 years then you benefit from some leverage (size of mortgage).
Say $430,000 property appreciates at 5% a year for 5 years is worth (theoretically) $522K. If deposit was 200,000 then loan say 230,000. so increase in equity = 92,000.
If 3% then $54,000. But if you leave the money in an abysmal 'high' interest bank account you are losing say 41%+ of that interest to the ATO. This way (if positive on outlook for prices) you have 'skin in the game'.
Always good to run some numbers to see the options available.
We have a lot of travel coming up in the next six months, so I suppose we will go ahead and get one each.
